3 Golden Rules to a solid Investment Plan

The 3 Golden Rules to Investing

When it comes to creating wealth, you need to start with a solid plan. A plan that is personalised to your situation, and one that is appropriate to meet your financial goals and objectives.

Everyone is different, so every plan should be unique.

Creating an investment strategy to help secure your financial goals requires careful understanding of some of the basics of investing rules.

Here are the 3 Golden Rules to Creating a Solid Investment Plan:

1. Time

Time is a critical factor in any situation but even more so when it comes to planning for your financial future.

How much time one has can alter one’s investment plans, and it can pivot the level of risk you can take.

Just having a longer time horizon does not guarantee a higher return but it does mean you have time on your side to consider other investment options and strategies that might give you an advantage in the long run.

Time can afford you to ride out the bumps in the market as well as give you the confidence and courage to look at more growth type investments that might lift your investment returns.

A shorter time frame tells us to look at defensive, safer investment options as one does not have the luxury of time to overcome the lower or negative returns.

Tip: No matter how young or old you are, start early to plan for your financial future. Don’t leave things to the last minute and find your options are depleted due to ‘not having enough time’ to seeing the fruits of good investment strategies.

2. Risk

One needs to know and understand their comfort zone when it comes to investing. No matter how much time we have on our hands to implement the best strategies, this won’t matter if you have a low threshold for risk taking.

It’s the same sleep test: Can you sleep well at night?

This is so important. A client who cannot sleep at night because they are worried about what the markets will be doing everyday clearly shows they do not have a high level of tolerance to risk. Risk in having a portion of their investments in growth assets like shares that will move up and down with the markets.

Nothing is risk-free or guaranteed in life, and it’s the same with investing but you can minimise the situation if one knows the type of investor you are, and how much time you have to invest.

Time and risk play important roles in getting an investment plan together, and both factors need to be taken into consideration to ensure a sound and an appropriate plan is tailored for your needs and emotional factors.

Tip: Ensure you truly understand what risk means especially what it means to you. Don’t assume you know things because the level of risk you’re prepared to take will impact your financial future.

3. Goal

What are your goals? What do you want to achieve? Can you clearly articulate your financial and investment goals?

This seems like the obvious but one needs to know what one wants to achieve, and be able to quantify in terms of ‘dollars and cents’ and timeframe.

Strategising an investment plan has to be based on concrete goals, and it is often an adviser’s job to ask the right questions to help clients identify and pinpoint their goals.

The difference between generic goals to specific goals is huge, and we do not want any misunderstandings or unwanted surprises.

Ensure you can communicate your financial goals in a S.M.A.R.T (specific, measurable, achievable, realistic and time bound) format.

An example of a generic goal:

‘I want to retire comfortably soon, and financially help with our grandchildren’s school fees.’

An example of a S.M.A.R.T goal:

‘I’d like to retire in 10 years time, and have an income of $XX,XXX per annum, and be able to make financial contributions of $XXXX per year (for 5 years) towards our grandchildren’s school fees.’

Conclusion

Understanding one’s S.M.A.R.T financial goals coupled with knowing one’s investment time horizon with being able to sleep soundly at night all help to create an investment plan that can set you on the right path to your desired financial future.

For more help on reaching your investment goals, talk to a Dome Financial Adviser in Charlestown, Tamworth and Hunter Valley.

The information contained on this page is for discussion purposes only and is not intended to constitute financial product advice. It does not take into consideration any persons objectives, financial situation or needs. You should consider its appropriateness in light of your circumstances and consider seeking professional advice relevant to your individual before making a decision based on any information on this page.

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